VIVA Industrial Trust more attractive with 9% yield?

Reader:
Any latest thoughts on Viva. The high yield attractive enough now?




AK:
You should question why is the yield relatively higher for VIT?

In my last blog on VIT, I mentioned the very short lease for their Chai Chee property as a concern. Of course, we know that they went ahead and bought another property in Toa Payoh with an even shorter lease. Alamak.

If we look at VIT's total gross floor area or total GFA (i.e. all their properties put together), 2.22 million square feet or 62% of total GFA have about 20 years or less to their land leases left. 






Will the land leases be extended and if extended, at what cost to unitholders? If you are thinking about investing in VIT or are already invested, this has to be a pertinent question.

If you think 20 years sounds like a relatively long time, take a closer look and you will see that of the 2.22 million square feet of GFA, almost 88% have about 14 years or less to their land leases left!

To be more exact, 1.95 million square feet have about 14 years or less to their land leases left! That is 54% of the REIT's total GFA!

How is that for a wake up call?





This means that 13 to 14 years from now, we could see half of VIT's distributable income vanishing into thin air. 

What would the 9% distribution yield or so at 77c a unit become then?

Cash flow would almost definitely take a plunge while we have to remember that the REIT's borrowings will probably stay the same since they are not amortized.

VIT's current gearing level is almost 40% and their interest cover ratio is about 4x. We don't even need rising interest rates to wreak havoc on VIT's numbers. If operational cash flow reduces by half or more, the REIT's interest cover ratio is in jeopardy.






I would rather sacrifice 1% yield and invest in AIMS AMP Capital Industrial REIT for a slightly lower 8% yield if I want exposure to Industrial S-REITs. Peace of mind is priceless.

AIMS AMP Capital Industrial REIT's current gearing level is about 35% and their interest cover ratio is about 5x. Stronger numbers? You bet.

I shared this during a workshop last year and again at a private event recently.

A REIT should think about improving the attributes of its assets which includes having longer land leases. 

Recycling capital by selling assets with shorter remaining land leases into assets with longer land leases, all else remaining equal, for example, is a sensible thing to do.





A good example would be the recent divestment of a property with a remaining land lease of 17 years by Cache Logistics Trust which used the proceeds to buy a freehold industrial property in Australia with a Net Property Income (NPI) yield of 7.4% with yearly rental escalation built in.

Being attracted by high yields could be like a moth being attracted to a candle flame if we are not careful.





Related post:
VIVA Industrial Trust not in my shopping list.

Healthway Medical and free money from Lippo. (Renamed "OUE Lippo Healthcare Limited".)

Donkey years ago, I invested in Healthway Medical Corporation (HMC). 

I liked the numbers and I thought it was relatively undervalued compared to peers.

Anyway, I got in at 10 cents a share and was mostly divested by the time its share price doubled months later.

Some of my comments from 2009.

Unfortunately, HMC had troubles later on and the last time I looked at it, its PE ratio was 100x or more. 

I still have a very small position in HMC made up of scrip dividends collected over the years. 

Free of cost to me and mostly forgotten, the shares are not worth very much today.

Although HMC's performance has been inconsistent, booking a huge impairment recently, the Lippo Group is making a takeover offer of 4.2c a share. 

They are the same people behind First REIT which is one of my largest investments and, of course, OUE Limited. 

I like to think that the Lippo Group know what they are doing and that they think they could transform the potential they see in HMC. 

Sounds familiar? 

Yes, that is OUE Limited's slogan: 

"Viewing every development as an opportunity to transform its potential."






Like I said, I have a very small stake that is free of cost. 

If HMC has a chance at being transformed and of doing better in future at the hands of the Lippo Group, I want a share, no matter how small it is. 

So, I am not accepting the offer.

ARA Asset Management and $1.78 a share.

After my ARA "fixed deposit" has been redeemed, what remains is my original investment which I paid $1.00 to $1.32 a share for.

Although the offer of $1.78 would mean a 35% to 78% capital gain, I would be losing a very consistent and meaningful source of passive income. 

A yearly 5c dividend per share (DPS) gives me a yield on cost of 3.78% to 5% and from a growing business with a very strong balance sheet too.

At $1.78 a share, a 5c DPS gives a dividend yield of 2.8% which is still pretty decent considering the fact that ARA pay out only about half of their earnings as dividends.

As an investor for income, naturally, I would like to continue receiving dividends from companies such as ARA. 

With an impressive full year 2016 performance, I am even more reluctant to let go of my investment in ARA now. 

So, I have decided not to accept the offer.

See presentation slides: HERE.

Make 15-18% a month or 180%-216% annually!

READER

I got a cold call FB request from a stranger

"I am from research expertise firm, we promote discipline & professional way of stock trading for consistant profit I found that you are interested in SGX Stocks "I am not inviting you for brokership Basically we promoting our trading strategies for consistent profit For stocks we have some master strategies like Volume Spread Method in this strategy you can minimize your risk "I am inviting you to try my trading strategies. In this you wil get 15-18% return in just 1 month and it grow in a consistent manner"

AK:

I get these sometimes too. I just block them immediately.

If can make 15-18% a month or 180%-216% annually, i think he should borrow from the bank and trade himself.

i usually just accept FB fren request becos 99% of my FB frens are not frens

i thought got ho kang tao mah. hahaha . play with him awhile then i block

i just block if turns out to be soliciting for XXX or XXXX or XXXXX...

u big buaya la diff

u so free lor

show trading records liao. i eat finish lunch eat snake

ROFL. i go watch k drama.... will nap later... 88

88

5:46PM

yawn

song lah wake up liao. Siesta damn song

yes, it was a very nice nap

song i just abt to leave office nia. Steady leh 180% returns the guy say his strategy can make. I am impressed he gave me 2015 n 2016 numbers hahaha. Seriously such lousy scam still exists

you banned him liao, i suppose

Banned, just now tempted to see what the impressive strategy is all about He immediately ask me how much I can invest Haha

LOL. Wonder how many victims liao

U think got ah Gong go invest in him? Pretty obvious leh

Maybe I should publish this in my blog

Haha as long as u take out my name Pls do so

Investing for income and dividend yields.

Reader:
wonder how aggressive you are at aiming dividend % yield when you were younger. Because I realized that recently you are pretty content with 5% yield or lower.







When we invest for income, a higher yield is naturally attractive but we want to exercise caution. 

We should avoid the instant gratification of yield. (See related post at the end of blog post.)

Be aware of our motivations and know what we are investing in. 

Then, we will know if our motivations and the investments match up.

Remember the pyramid:

There are investments for income and investments which are for a mix of income and growth.

Investments for income should be steady cash generators for us. 

The emphasis here is more on stability. 

They are bond like in nature. 

As they are less likely to deliver any significant growth, demanding a more meaningful dividend yield makes sense. 

However, greater emphasis should be on stability for whatever timeline we are looking at.






Investments for a mix of income and growth should also be steady cash generators. 

They could deliver significant growth over time and it makes sense to pay out less to shareholders as they need more financial resources to grow. 

So, if we are investing in such businesses, we might have to accept a lower dividend yield. 

This could change in future as the business matures and starts paying out a lot more in dividend.

Most of my investments are for income but I also have investments for income and growth such as Hock Lian Seng, Old Chang Kee, Wilmar etc. 

A more recent example would be Centurion.





What is an acceptable level of dividend yield? 

The answer will depend on what we are looking for from an investment.

Related post:
Instant gratification of yield.

Centurion Corporation Limited Full Year 2016 Report.

I recently added Centurion Corporation Limited to my investment portfolio at 38c a share and I am pleased to learn that I will be rewarded with a dividend per share (DPS) of 1c which is payable on 19 May 2017. 

An annual DPS of 2c could be the new norm for Centurion Corporation Limited if their business continues to do well, well enough to offset any increase in interest expense. 

If this should be the case, I would be enjoying a dividend yield of 5.26% on cost and for a growing business too.

For more details, see presentation slides: HERE.





I mentioned in my last blog on Centurion Corporation Limited that, although manageable, its high level of borrowings is a concern. To allay concerns, its operational cash flow must remain strong. 

At the time, I said its interest cover ratio was 3.4x and that it could weaken to 2.55x if interest rate should increase by 1%.

So, this is something I will keep an eye on as Centurion Corporation Limited reports its quarterly results for 2017 in the coming months. We want to see that its level of debt remains manageable.

Related post:
Added Centurion Corporation Limited.

OCBC 360 updated (and downgraded) again.

Once upon a time, OCBC 360 together with the OCBC Frank credit card, was my favourite combination to get higher interest income on my savings.

I just had to spend $400 with my Frank card and pay 3 bills online and I would get a 2% interest rate on my savings. With no monthly salary to credit into the account, that was the best I could do.




Then, the benefits were revised and suddenly my interest income, everything else remaining the same, halved! 

So, I junked the combo and cancelled the Frank card.

Now, this doesn't mean that the OCBC 360 is not good for others, especially those who have a monthly salary to credit into the account.

However, with the latest revisions, it is probably not as good as before.

The impression I get is that OCBC wants us to save more but is paying us less to do so.

Forget about the "Wealth" and "Save" boxes. "Salary", "Payment" and "Spend" are what most people hit.

So, after the revision, we would receive 1.8% in bonus interest whereas we were receiving 2.2% before.

Of course, the original OCBC 360 would have paid 3.0% for the same 3 conditions!

3.0% to 2.2% to 1.8%.

Alamak and I thought interest rates are rising. I must be growing old and senile.




Of course, for people without a monthly salary to credit, it would have reduced from 2% to 1% to 0.6%. This is after meeting two conditions too. Duh!

Most of my savings is with CIMB Star Saver now because they pay 0.8% up to the first $750K. 

I don't have to use their cards or pay bills online to be paid 0.8%.




If OCBC wants me to save more with them, they should make it easier and more rewarding for me to do so.

Related posts:
1. UOB ONE or OCBC 360 (plus BOC)?
2. My savings accounts and money flow...

How much is QAF Limited worth using DCF?

Warren Buffett on Interest Rates & Valuations.

Many people ask me what is a fair price for QAF Limited. Obviously, all of us will have our own answer.

Of course, depending on Mr. Market's mood, share price could go higher or lower. There is no accounting for prices or so I have heard people say.

What we can try to find out is the intrinsic value to help us make sense of the price offered by Mr. Market. After all, price is what we pay and value is what we get.

I decided to play around with some numbers to see what QAF Limited's intrinsic value should be using Discounted Cash Flow (DCF), a process which is made much easier using an online calculator I found: 
http://www.moneychimp.com/articles/valuation/dcf.htm

I will try to be more conservative because I don't know all there is to know. Instead of entering earnings per share (EPS) as 10.9c, I will enter 10c.

In scenario 1, to be even more conservative, I assume zero growth in QAF Limited's earnings and a risk free rate of 3% which is a bit higher than what is offered by a 30 years bond issued by the Singapore Government now. The risk free rate is what I am going to use as the discount rate for DCF calculation.

Stock value per share: $3.33

In scenario 2, to be even more conservative, I assume a higher interest rate environment with a risk free rate of 5%. Again, I assume zero growth in QAF Limited's earnings.

Stock value per share: $2.00

In scenario 3, to be more realistic, I will assume some growth in earnings. After all, QAF Limited's EPS has grown over the last few years. I will use a risk free rate of 5% in this scenario for that conservative element.

Stock value per share: $2.50.

Now, is QAF Limited's fair value at least $2.00 a share? You blur? Don't look at me. I am only a blogger. What do I know?

Read more about DCF: HERE.

Related post:
What is QAF Limited really worth?

3 good reasons to buy a car. (Buy a car with 4D winnings or win again?)

Reader:
I want to thank you... A friend shared your 4d pick at a gathering... I am a gambler and I bought the most... I have never won so much money gambling before...  He told me to top up my CPF but I have been thinking of buying a car...








AK:
Welcome to my blog. I will not tell you not to buy a car if you are one of the following:

#1 If you NEED a car and if you have the money for the upkeep, buy it. Upkeep? Yes, road tax, insurance, maintenance. You know. Upkeep. Paying for fuel, parking and ERP are just the smaller expenses.





#2 If you are able to make more money from owning a car, why not? If you are an UBER driver renting a car now, for example, you could save (what an UBER driver told me) $70 a day in rental. That works out to be $2,100 in a 30 day month! That's a lot of money.






#3 If you have enough money today to last you till the day you die without having to work another day of your life, if you WANT a car, what's stopping you? Hey, Y.O.L.O. See? AK is not unreasonable nor extreme like what some people say.

Now, if you are none of the above, what do you do? 

Don't buy a car! 

Why not consider this instead?

The CPF Full Retirement Sum (FRS) is now $166,000. So, you are allowed to top up your CPF-SA to $166,000.





30 years from now even if there should be no more contribution to your CPF-SA from today (i.e. if you stop working today), compounding at 4% per annum, you would have $538,403.99 at age 55.

Then, after setting aside the prevailing FRS in your CPF-RA, you could withdraw the rest of the money if you like. 10 years from then, at age 65, you would also get a monthly income for life.






Oh, the calculation above did not take into consideration the additional 1% interest paid on the first $40K in your CPF-SA. Aiyoh, never mind lah. 1%? That is small money when you are rich, right? Kidding!

100% win rate. There is no easier way for a gambler to win money. Believe it!





Related posts:
1. Chinese New Year lucky 4D.
2. Don't have to be smart to be rich.
3. Showing off my CPF numbers!

My savings accounts, recent money flow and investments.

I have a few savings accounts but my most used accounts are the following three:

1. POSB
Despite the low interest rate for my savings, I am holding on to my POSB account mainly because I have had it since I was a boy and I feel comfortable with it. I have many arrangements tied to this account and it would be a bother to terminate it. The most important function of this account for some time now is to make and receive payments for my stock market transactions.





2. UOB
The UOB ONE account provides me with higher interest income. Since I am unemployed, I don't have any salary to credit. So, the higher interest rate offered by OCBC360 and BOC to do this doesn't apply to me. With UOB ONE account, the most important criterion is spending on the UOB ONE card. I just have to charge $500 a month to the UOB ONE Card. I do spend money despite what some might think. I keep slightly more than $50,000 in this account.





3. CIMB
I know many are worried about Malaysian banks. I was worried too but I did some research into CIMB and decided that it is well run enough although it still pales in comparison to Singaporean banks. I like how it offers a flat 0.8% interest on savings per annum (on the first $750,000) and I like the free cheque book. Yes, I am an IT dinosaur and still write cheques. I keep the bulk of my savings in this account.





I know some are worried about how having more money in the bank means money is rotting away to the extent that they do not keep an emergency fund but I think the majority of us would probably be quite happy to see more money in our savings accounts.

When I shared my investment results for FY 2016, I said I added to a few positions (See related post at the end of this blog.)







In recent weeks, I reduced my investments in SPH and Hock Lian Seng.

Although I did start a few new investments this year, namely,

1. Frasers Logistics & Ind. Trust
2. CapitaLand Retail China Trust
3. Kingsmen Creatives
4. Centurion Corporation Ltd.

And added to my investments in

5. APTT*
6. IREIT Global
7. Sabana REIT (Rights Issue)
8. Religare Health Trust






When I logged into my POSB account just now, I saw a balance which is a little bit more than what I would maintain usually. 

The total value of the stocks that I sold must be higher than the total value of the stocks I bought in recent times. 

Related to this, I decided to see exactly how much money came in and how much went out for the whole of 4Q 2016 and the current year to date:

Outflow:
$284,370

Inflow:
$320,090

Net inflow:
$35,714

Why am I sharing this? I just feel like it, I guess. Nothing profound.

If you manage to get something useful from this blog, I am glad.





However, we should not read too much into the musings of a mental investor who blogs as a past time.

Related post:
Full year passive income from non-REITs.

* With the rather substantial run up in APTT's unit price since December last year, I decided to reduce my investment in APTT today, retaining only the legacy position from its MIIF days. 

Some might remember that I added to my investment in APTT on the assumption that a DPU of 4c is more sustainable than 6.5c and at 37.5c a unit, I was looking at a 10.66% distribution yield from a heavily leveraged entity. Now, it has come down to 8%. 





As a more sustainable 8% distribution yield could be found in some less heavily leveraged entities, I am selling APTT at a price I would not buy at.

Hence, the net inflow of funds revealed earlier will see an increase in the next two days, everything else remaining equal.

What is QAF Limited really worth?

Gardenia is providing the best that consumers deserve! Impressive!

QAF Limited has announced a 129% increase in full year net profit. 

A final dividend per share (DPS) of 4c has been declared. Total DPS for the year is 5c.

Why the big jump in net profit? There is an exceptional item which accounts for almost $60 million worth of income.

Earnings per share (EPS) for the full year 2016 is 21.4c. Excluding the exceptional item, EPS is 10.9c which is still a very decent 16% increase over 9.4c from the year before.

I have said before that QAF Limited should trade at a PE ratio of at least 14x. However, if what happened at Auric Pacific is any gauge, QAF Limited should trade at a higher PE ratio.

Shareholders of Auric Pacific (think Sunshine bread) received an offer price of $1.65 a share in early February. I said then that the offer valued Auric Pacific at about 18.3x PE ratio.

Based on Auric Pacific's full year results released a few days ago, a full year EPS of 5.74c means that the offer price of $1.65 valued Auric Pacific at 28.7x PE ratio! (See announcement: HERE.)

I have also found out that leading packaged bread bakeries in Thailand and the USA trade at 19x and 23x PE ratios, respectively. 

Based on all these comparisons, QAF Limited even at $1.55 a share is still inexpensive. At 18x PE ratio, it should trade at $1.96 a share.

Of course, I do not know if Mr. Market is willing to pay $1.96 a share for QAF Limited and, frankly, this is more of an academic exercise for me. After all, I am more interested in collecting dividends from well run businesses.

In January, QAF Limited announced plans to expand their operations in the Philippines, a market which is doing very well for them. All else remaining equal, they are likely to do even better once their expansion in the Philippines is completed in the next 2 years.

What is QAF Limited really worth? Don't ask me. I am just a blogger. What do I know?

See results: HERE.
Related post:
Good entry price for QAF Limited?